Evaluating group purchasing organizations - Focus Area: Business - Illustration - Industry Overview

Healthcare Financial Management, Jan, 2003 by Dennis C. Kaldor, Jamie C. Kowalski, Mark A. Tankersley

In the example in Exhibit 3, the market-basket price survey results carry a weight of 6 (6 percent of the total and 6 of the 36 points in the purchasing and financial services category). An assessed score of 8 out of 10 would yield a weighted score of 48 (6 weight x 8 score = 48 weighted score). Statistical analysis such as inter-rater variance can be used to assess scoring bias if more than eight scorers are involved in an opinion survey of a GPO. This method can be particularly useful if hospitals in a health system contract with multiple GPOs. Each scoring instrument is intended to be used by one scorer for one GPO at a time. Aggregating the responses can provide an objective and quantitative means to evaluate one or more GPOs.

The GPO that best matches a healthcare organization's needs will have a higher overall score as a result of the evaluation. Some individual factors associated with each GPO may not be as highly rated. If this is the case, consideration should be given to the real and perceived performance of those factors.

Additional Factors

Over time, competition among GPOs may lead to uniformity in product pricing. However, one GPO may offer a healthcare organization greater financial value for its specific product mix and volume (ie, market basket). In addition, contract timing can significantly affect a market-basket comparison. If a product is provided under a GPO contract that is approaching maturity and was developed two to five years ago when prices were lower than current prices, that contract may appear to be significantly more advantageous than a contract signed within the past six months at a higher price. Healthcare organizations should consider contract signing and expiration dates when evaluating advantages of GPO contracts.

In addition, prices for similar products available through various GPOs may vary significantly Healthcare organizations need to determine whether acceptable substitutes exist for products they currently use. The savings or value may be great enough to influence the healthcare organization to switch to those products.

Conclusion

The relationship between a healthcare organization and its GPO can be an important, positive contributor to the effective management of supply expenses and supply-chain operations. Because this relationship represents a substantial portion of the healthcare organization's overall operating budget, it needs to be managed effectively. By carefully evaluating the prices and services offered by GPOs, healthcare organizations can ensure that their selection and continued use of a GPO is based on the GPO's ability to provide the best value--quality of products--cost-effectively.

EXHIBIT I: CATEGORIES FROM GOP ANALYSIS SCORING INSTRUMENT

Proportional Values Not Shown

1. Organizational profile

2. Mission, strategic plan, philosophy, goals

3. Membership criteria and definition

4. Business practices, code of conduct, ethics, and so forth

5. Portfolio of contracts

6. Decision-making process

7. Communication process